NI/tax question

[RCTLisa]

I have been told that childminders pay much lower tax & NI contributions compare to those who are employed by a company. Is this true and if so what is the rate. ( I am trying to work out if I can afford to do this at the moment)

[MrAnchovy]

Everyone pays income tax at the same rate - 20% on their income in excess of their personal allowance (which for most people is £7,475 in 2011/12), with higher rates applying for higher incomes.

Most employees pay Class 1 National Insurance at 12% on earnings above £139 a week. Self employed people (including childminders) pay Class 4 NI at 9% on profit above the same level BUT they also pay Class 2 NI at £2.50 a week, so if they earn less than £222 a week they actually pay MORE NI than employees in total.

However, self employed people incur expenses in running their business most of which they are entitled to deduct from their income so tax and NI are only paid on the net profit. (Employees are also allowed to deduct certain expenses, but only for tax, not for NI).

Don't believe everything you hear, especially about tax :D

[RCTLisa]

Thank you.

[sarah707]

What your friend probably meant was that by the time you have deducted all your expenses from your income you might find that you have very little tax to pay because we have a lot of allowable expenses :D